Covid-19 prompts sharp decline in Q2 cell phone sales in Brazil

Sales collapse due to supply chain challenges and a general lack of interest from consumers amid the public health emergency.

Sales of cell phones in Brazil have plummeted in the second quarter of 2020 as a result of the new coronavirus crisis in what is one of the worst scenarios ever recorded for the segment, a new study has found.

According to the quarterly research on the cell phone market in Brazil conducted by analyst IDC, sales have seen a decrease of 30.7% between April and June in relation to the same period in 2019, with 9.631.424 devices sold.

This is due to difficulties around lack of imported components to assemble the items and around logistics to deliver them, as well as the closure of high street retailers as part of the response to local authorities' rules to slow the spread of Covid-19 and general lack of interest from the public in buying a new device due to other concerns such as unemployment.

"The scenario was favorable at the start of the year, but the pandemic impacted practically all industry sectors and that was no different with the cell phone market, which suffered from the lack of components from China and the price increase due to exchange rate fluctuations", said Renato Meireles, research analyst and consultant in the consumer devices division at IDC Brazil.

According to Meireles, online sales channels softened the impact on the sector at the start of the coronavirus crisis. However, while sales via e-commerce saw growth above expectations, the analyst said, but that was not enough to make up for the decline seen in the second quarter.

Of all total handsets sold in April, May and June, 8,745,054 were sold via official channels such as high street retailers and operators. Smartphones account for 8,353,195 units of that total, while 391,858 feature phones were sold, down 31.1% and 54%, respectively compared to the second quarter of 2019. Some 790,431 smartphones were sold via the gray market, up 8.3% compared to the 2nd quarter of 2019, and 95,939 feature phones, a 51.1% year-on-year decrease.

When it comes to feature phones, though a drop in sales was already expected, the category still has an appeal in Brazil, though with a much less relevant share, of about 5% of the market. "In more remote regions or for consumers who are not adept, or need the technology of smartphones, the cost-benefit of a feature phone is attractive", Meireles noted.

According to IDC, the best-selling category in the second quarter of 2020 across all channels was high-end smartphones, with 3,363,076 units at a price range of BRL 1100-1999 (USD 206-375). The second best-seller was mid-range smartphones with 3,247,741 units sold with entry-level prices ranging between BRL 700-1099 (USD 131-206).

Prices have increased across the board when it comes to smartphone sales in Brazil: the average price of a smartphone was BRL 1539 (USD 289) in the official market and BRL 1727 (USD 324) in the gray market, up 22.9% and 36.2%, respectively, compared to the second quarter of 2019. The ticket average of feature phones was also 39.5% higher in the official market, and 24.6% in the gray market.

Total revenue of the cell phone market in the second quarter of 2020 was BRL 14.8 billion (USD 2.7 billion), 8.5% less than the same period in 2019. Smartphones accounted for BRL 14.3 billion (USD 2.6 billion) while feature phones represented BRL 82.6 million (USD 15.5 billion) of that total.

The numbers for Q2 2020 follow a previous report published by IDC in March, in which it predicted the smartphone segment could see an interruption of the growth trajectory it had enjoyed in previous years.

In March, the analyst firm predicted growth of 2% in smartphone sales in Brazil for 2020. In its latest update, the firm did not provide a revised outlook with a specific number in terms of forecast growth for the year but said that sales will see a gradual improvement in Q3.

"The current [consumer] focus is still on health and [the attitude] is of caution outside the home, but the reopening of physical stores is very important for the resumption of smartphone sales and the trend is that the current drop should decrease", Meireles said.

The analyst added that sector performance for the year should be in line with macroeconomic indicators pointing to improvements in the GDP and that the government's emergency aid to financially vulnerable citizens should also be helpful to device sales.